Yardi Matrix – Multifamily Rents Up; Rate of Growth Continues to Slow

Rent Survey | April 2017

Multifamily rents rose slightly in April, but the rate of growth slid once again and now stands below the longterm average growth rate. Average U.S. monthly rents rose $3 to $1,314, according to Yardi Matrix’s monthly survey of 121 markets. On a year-over-year basis, rents were up 2.0% nationwide in April, down 50 basis points from March and well below the 5.5% growth rate of a year ago. The 2.0% year-over-year increase is the lowest it’s been since April 2011, when rents were up only 1.5%. As we have said for months, the deceleration is expected, given the rapid increase in supply and the inevitable return to growth that is more in line with income gains.

Rents have (in most metros and most segments) far exceeded the rate of income growth in recent years, when the number of renters increased rapidly while supply nosedived in the wake of the last recession. Now rents are peaking and have become difficult to afford for the average resident in many metros, while supply is at cyclical peaks. We expect upwards of 363,000 units to come online in 2017, with the number of deliveries declining in 2018 and 2019.

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Trailing 12 Months: Rent Gains Continue to Moderate On a trailing 12-month basis (T-12), rents grew 3.8% in April, down 20 basis points from March, as rent gains continue to moderate. RBN rent growth was 4.8% in April, and now exceeds Lifestyle gains by 200 basis points, as the gap between workforce housing and luxury apartments continues to widen. The surge of new Lifestyle supply has limited the pricing power of many apartment owners in secondary markets in the South and West, as well as primary coastal markets. Sacramento (9.9%) led overall rent growth on a T-12 basis, as strong job growth, limited supply and relative affordability compared to the Bay Area supports the continued upward trajectory of rents. The Inland Empire (6.9%), Seattle (6.6%) and Portland (6.0%) also led the nation, as steady economic fundamentals and population gains support the multifamily housing market.

Employment, Supply and Occupancy Trends; Forecast Rent Growth We expect that rent gains will be rocky over the next 12 to 24 months as the market digests the wave of new supply coming online. Apartment owners should moderate expectations during that time, even though we expect fundamentals to remain strong and the long-term demographic picture looks positive.

Completions are swelling in major and secondary markets across the country. Markets such as San Francisco, Denver and Austin—which saw near double-digit rent growth as recently as 18 months ago—now face a wave of new apartments that are causing the rent growth to flatten or decline in some segments. Other markets—such as Charlotte (completions represent 5.8% of total stock), Nashville (4.9%) and Miami (3.5%)—maintain solid rent growth overall but will likely see a significant deceleration as new units compete with existing stock.

Expect to see negative rent growth and concessions for new lifestyle properties, while outsize demand for workforce housing should continue to drive rent gains in the RBN segment.

Job growth remains robust and is supporting absorption of the new housing supply, although rent growth will be limited by slowly growing wages. We anticipate 2017 will be the high-water mark for apartment completions, and given the strong pent-up demand for housing, the apartment market has significant long-term upside potential, but it may be some time before we see above-trend growth again.